National corporations that avoid paying state taxes on profits channeled through off-shore tax havens would have to pony up if a bill prohibiting that practice is adopted. In an 86-58 near-party-line vote in the Maine House today, lawmakers gave initial approval to the measure. Democrats say the bill could pump an additional $5 million annually into the state's coffers, but Republicans argue the proposal is bad tax policy and could turn out to be a job killer. A.J. Higgins reports.

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Maine Bill Targets Offshore Tax Havens

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Currently, there's a list of more than 30 nations that would effectively be black-listed by the state of Maine under the bill sponsored by Bangor Rep. Adam Goode, the Democratic co-chair of the Legislature's Taxation Committee. Rather than allow companies like Bank of America and Google to avoid paying taxes on profits stashed in off-shore tax havens, Goode says businesses filing Maine corporate income tax returns would have to report income from those tax haven countries.

It's a change in tax policy that he says could return $5 million annually over Maine's two-year budget cycle.

"That's $10 million dollars that could go to property taxes, could go to revenue sharing, could go to the property tax fairness credit, could go toward helping small businesses in Maine, could go towards Headstart," Goode said. "And it really just seemed not in balance, not smart and not fair that we would allow multi-national corporations to hide their corporate income in a place like the Cayman Islands or in Bermuda while we ask more and more of our struggling young parents, while we ask more and more of our small businesses at the same time."

Critics of the bill warned that the state of Maine could be hampered by international treaties that approve of off-shore trade tax havens. But states' rights have been evolving on that issue. Montana has collected corporate income tax on tax haven income for the last 10 years, and Oregon is currently pursuing a similar policy.

Rep. Sharon Treat, a Hallowell Democrat and a state foreign trade policy advisor, says it's clear that international agencies, such as the Organization for International Investment, do not feel bound by U.S. tax treaties and protocols. Treat says the state should not allow itself to be pushed around by those who think tax havens are protected by treaty.

"Right now we are not bound, and I think that we need to independently exercise our state sovereignty and do what's right for the people of Maine," Treat said.

But in an effort to kill the bill, Livermore Falls Rep. Gary Knight, the four-term lead Republican on the Taxation Committee, seemed to sum up the GOP position in the House.

"This particular bill, in all due candor, is the worst piece of legislation that I've seen in my eight years," Knight said.

Knight warned that attempting to force U.S. companies using offshore tax havens to pay taxes in Maine could result in job losses here. He says he's received numerous letters from various organizations and governments opposed to the bill.

Among them was one from Liechtenstein's ambassador to the United States, who warned that the bill may discourage, or become a future impediment to, her country's investment opportunities in Maine. Ambassador Claudia Fritchse also said that the bill would undermine her country's positive partnership it has shared with the United States.

Rep. Richard Malaby, a Hancock Republican, says high taxes in the United States are forcing companies headquartered here to seek financial relief through tax haven countries, and that in a global economy, companies may consider other options if states pursue tax policies like those favored by Democrats.

"Businesses are going to move their headquarters abroad and you can't blame them," said Malaby. "I personally would rather see them move to Maine, but in order to do that, we would have to lower our tax rates."

After rebuffing the attempt to the kill the bill, Democrats went on to pass LD 1120, 86-58. The bill faces additional votes in both houses.